Blockchain is the New Deal for the Digital Economy
The headlines surrounding Mark Zuckerberg’s recent testimony before Congress focused on one point: Senators have no clue how the internet works. In particular, the media focused on Senator Orrin Hatch’s question, “…how do you sustain a business model in which users don’t pay for your service?” The obvious answer was ads, an economic principle so basic it should not be questioned. The unquestioned bargain in the internet economy is free access in exchange for selling ads and personal data.
The media and Senator Hatch failed to ask: what if there could be a different bargain that would create new digital economies that compete with platform monopolies like Facebook? In an increasingly digital economy in which our data becomes the most valuable commodity, must we accept by default the appropriation of our data, our property, in exchange for access? What if there could be a different economic model that aligned network value (rather than corporate value) with user interests (rather than shareholder interests)?
In the current Facebook paradigm, the economic deal requires users to provide data in exchange for access to a platform, but that bargain is increasingly one-sided as users have no control and visibility over how their data is used, manipulated, and monetized. Furthermore, as social media platforms demonstrate, a user’s very participation in a network increases the value of the network — yet that value is entirely captured by a monopolistic company such as Facebook, whose shareholder interests are not necessarily aligned with user interest. And as networks are increasingly monopolized, users have less and less power.
What Web 3.0 and blockchain-based systems enable is a new deal, whereby participants in a network not only own their own data but receive an economic base in the network called a token, which is a digital asset that is analogous (but not equivalent) to equity — a token that gives users a stake in the participation, governance and value of the network. This mechanism aligns the value of the network with user interests.
In the Web 3.0 version of Facebook, Facebook would be an open source network whereby users would be able to earn tokens from creating and curating content, build their own applications and monetization models on top of the Facebook network (without permission from Facebook), and vote on governance issues. Reward mechanisms are implemented not by Facebook the company but automatically through the underlying blockchain code. Greater user participation contributes to the network value, which is captured by the user’s stake and rewards in the token.
At ixo, we work closely with Ocean Protocol to provide the blockchain infrastructure for decentralized data exchanges — in our case, a decentralized marketplace for impact data, enabling projects to share, exchange and even monetize its impact data. The possibilities of an impact data marketplace are potentially transformative for the philanthropy, impact investing/pay-for-success financing and impact evaluation sectors. For example, a marketplace for data oracles to evaluate impact claims will enable impact evaluation to finally scale, which creates accountability for philanthropy funding but importantly, enables pay-for-success and results-based finance structures like impact bonds and carbon offsets to become scalable financial investment instruments. Capital is more efficiently allocated and more effective programs can be designed.
At ixo, we have been educating local lawmakers on how these new blockchain-enabled economic models may create new incentive paradigms for value generation that is not simply reduced to profit generation. Through the creation of new digital assets based on impact measurements, which can range from carbon offsets to health improvements, ixo can enable new impact investing instruments with verifiable proof of impact. ixo’s platform can also be used for citizens to make claims about their civic contributions, which can earn them local currencies to help capital stay within the local economy.
We have been working with New York State Assemblyman Ron Kim on his legislative efforts to create a sandbox for blockchain and fintech innovations in New York, with a particular focus on blockchain’s social potential — for example, how ixo can be used to create municipal financing accountability and align stakeholder interests. We need to adopt a “sandbox” approach toward blockchain to enable startups to experiment with technology, business models and use cases, while working with the industry on long-term solutions to monitor cryptocurrency exchanges and standardize token sales. The New York FinTech Sandbox Act (A. ) would effectively repeal BitLicense, which is universally regarded as unworkable and uncompetitive.
Senator Hatch was right about one thing: we don’t need government to regulate Facebook. We need the community to regulate Facebook, and this is what blockchain enables: new technologies and paradigms that compete with and transform extractive models. At the moment, lawmakers and regulators are not seeing the connection, and have made the U.S. an unfavorable jurisdiction for blockchain innovation. If you’d like to support New York’s sandbox bill, please feel free to reach out to us, or Assemblyman Kim.